Brian Ondeng, East Africa Portfolio Manager, Acumen

There is a lot of pressure on entrepreneurs to grow at all costs and scale at all costs. That pressure often pushes them into situations where they overestimate their cash flow runway and then end up in situations where they are back fundraising but not having achieved their initial targets.

Some of the challenges of having overly optimistic forecasts and inflated projections is that there are serious cash implications tied to this. I like to use the example of planning for a road trip and fueling up your car, expecting the fuel to take your car up to the next petrol station, when in reality maybe you underestimated the amount of fuel you needed. And then you get stuck on the side of the road, and now your priorities have changed. Your priorities are now trying to salvage the situation, making sure you're safe, trying to get to the nearest petrol station, trying to survive.

And that’s what a business can typically get itself into. They change their focus from growth to survival because they overestimated their ability to realize their inflated forecasts. And typically, that comes in ways such as working capital considerations, capex considerations, or market considerations.

• You may have overestimated the demand, or you may have thought it would come earlier than it did.

• You may have put too much capacity in the business before you actually got traction.

• You may have underestimated your own ability and your team’s ability to achieve those plans, and now you begin to see the gaps. And now your focus is survival.

Key takeaways

• Inflated forecasts shorten your cash runway and force you from growth mode into survival mode too soon.

• Realistic projections protect your credibility and cash when growth takes longer.